HE 2757 
1919 
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Russianizing the 
Railroads 


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Guaranty Trust Company 
of New York 

140 Broadway 

FIFTH AVE. OFFICE MADISON AVE. OFFICE 
Fifth Ave. and 43rd St. Madison Ave. and 60th St. 

Capital and Surplus - - - $50,000,000 

Resources more than - $800,000,000 



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Russianizing the Railroads 


The Real Issue Raised in the 
Brotherhoods’ Plan for Class 
Control of Transportation. 

By Francis H. Sisson, Vice-President 
Guaranty Trust Company of New York 

^JpHE United States today faces a new is¬ 
sue and begins a new chapter in its 
history. In the proposal of the railroad 
brotherhoods and their affiliations in the 
American Federation of Labor to nationalize 
the railroads, socialism, for the first time in 
our history, throws down the gage of battle 
nationally and demands a trial at arms. This 
challenge, in itself of far-reaching importance 
in the attempt it makes to control the great 
service of transportation, is of much greater 
significance in the definite threat that success 
in this field will be followed by efforts to se¬ 
cure the nationalization of all industry, or, 
in other words, a complete socialistic state. 

The time has come for the citizens of this 
country, its business men and its laborers, 
its property-owners and its workers, seriously 
to face the issue presented, if they are not 
to see their interests ruined and their prop¬ 
erty confiscated by economic experiments 
and social hysteria which seem to fill the air. 
Not since the free silver fallacy arose to 
threaten American business and progress has 
so dangerous a menace threatened our pros¬ 
perity. This bold effort to take possession 

* This article originally appeared in The New York Times 
of August 10, 1919, under the heading of “Warning Against 
Plumb Plan.” It has been expanded in its present form by the 
addition of several new paragraphs. 

[3] 






of one of the nation’s basic and most vital 
industries for the benefit of a single class, 
and to the assured detriment of all others, 
frankly discloses the wide spread of social¬ 
istic thought in this country, and the danger 
to American institutions which it implies. 

Appeal to Common Sense 

It is inconceivable that, if the American 
people as a whole really understood the ele¬ 
ments in the problem presented, there could 
be any doubt about their solving it. The most 
ordinary common sense, awakened self-in¬ 
terest, and knowledge of human nature and 
human experience should quickly repudiate 
the fallacies inherent in the proposed Plumb 
plan. The danger is that public thought will 
not be quickened to the situation, and, 
through lack of understanding and organi¬ 
zation, legislation may be forced through 
Congress by means of organized political 
pressure, backed by abundant funds for 
propaganda and lobbying, which will work 
irreparable mischief before the public is 
aroused to the peril. 

The Plumb Plan 

The essentials of the Plumb plan for work¬ 
ers’ management of the railways may be 
summarized as follows: 

1. Confiscation of #6,000,000,000 worth of 
railway property, by forcing the owners 
to accept 66 cents on the dollar for their 
properties; 

2. Purchase of the properties by the Gov¬ 
ernment, after an increase of some bil¬ 
lions of dollars in the public debt, and 
the lease of them to a Workmen’s Coun- 


cil, on which the Government will have 
a one-third representation. 

3. Fixing of all wages and the purchase of 
one and a half billion dollars’ worth of 
material annually by the Workmen’s 
Council. 

4. Any profits above the interest on the 
Government bonds to be divided between 
the Treasury and the workers; any losses 
to be met by the general public through 
taxation. 

5. From $700,000,000 to $1,000,000,000 of 
new capital annually to be subscribed by 
the public and turned over to the Work¬ 
men’s Council for railway extension. 

6. No financial risk to be assumed by the 
Workmen’s Council; but the public is to 
be protected by giving Congress the right 
to revoke the charter of the Workmen’s 
Council Corporation if the scheme doesn’t 
work. 

Attitude of Brotherhood Leaders 

Perhaps the clearest picture of the mental 
attitude of the brotherhood leaders toward 
the railroad situation is given in their own 
words concerning it at the time this plan 
was announced. W. G. Lee, President of the 
Brotherhood of Railway Trainmen, said be¬ 
fore the Board of Railroad Wages and Work¬ 
ing Conditions in Washington: “The war is 
over, but peace is not before us, or I am a 
poor prophet. We are nearer war today, I 
believe, than when the Kaiser threw down 
the gauntlet.” L. E. Sheppard, acting head 
of the Order of Railway Conductors, also 
said: “They tell us that the railroads are 
going back in January, but mark this pre¬ 
diction: While I am not a prophet, or a 


son of a prophet, they will not go back 
January i.” Warren S. Stone, Grand Chief 
of the Brotherhood of Locomotive Engineers, 
in a newspaper interview published on 
August 4 was asked the question: “How 
far will you go in the fight ?” He replied— 
“emphatically,” as the reporter noted: “We 
will go far enough to win, and we are going 
to win.” He was asked: “What if the roads 
are turned back to their owners?” He re¬ 
plied: “If they should be, they wouldn’t 
stay there long, and it is not absolutely sure 
that they will be turned back by next 
January.” 

Interests of all Classes Involved 

Every element in the body politic has a 
stake in this situation. The man with 
money and the man without it are equally 
concerned, and the great middle class, which 
constitutes the majority, has its all in¬ 
volved. Even the railroad worker, himself, 
while he would undoubtedly profit temporar¬ 
ily by control of these properties, would in 
the long run be injured because of the as¬ 
sured failure of the plan and the economic 
chaos which would follow the working out 
of this program. 

It is impossible within the scope of a brief 
article to cover the many fallacies involved 
in the present proposal, but some may be 
mentioned by way of illustration. 

Perhaps no fallacy is more glaring than 
that which proposes that the Government 
purchase the railroads through the issuance 
to the public of 4 per cent, bonds, when it 
should be perfectly obvious to any student 
of finance that this would be both legally 
and physically impossible. In the first place, 

[ 6 ] 


the Government could not float a bond issue 
which would cover the purchase of the rail¬ 
roads at 4 per cent., or near that rate. Only 
under the tremendous pressure of war neces¬ 
sity were we able to float our last loan at 
per cent. For such a purpose as this a 
higher rate would be demanded, and even at 
a higher rate it is doubtful if the general 
public would buy in such volume a security 
based upon such an experiment. 

All Capital Endangered 

A fuller appreciation of the menace which 
this plan carries may be given in its direct 
attack upon values created out of earnings or 
unearned increment in any form. We may 
well ask why, if capital invested in railroads 
is to be denied the value accumulated out 
of earnings, values created out of earnings 
and from advantage of location, efficiency, 
patent rights, etc., in every other line of 
business shall not also be challenged. By 
what right can such values be retained in 
real estate, industrial and commercial 
activities, if they are to be denied to capital 
invested in public utilities? When capital 
was invited into these utilities, it was on 
the same basis in which it would enter any 
other field of investment, and, in effect, to 
confiscate this capital now by embodying a 
new set of conditions for its investment and 
use is distinctly unfair to those w*ho took 
the hazard at the time of investment. By 
this same logic, the farmer who received a 
Government 'land grant at a nominal figure 
must today be denied the increment which 
has come to him through the increased popu¬ 
lation and the increased price of the com¬ 
modities he raises. In other words, this is 

[7] 


the first step in a complete programme of 
socializing business, and if we are to accept 
this theory as sound, we must logically fol¬ 
low it through to the end. 

Wall Street as Middleman 

The brotherhood leaders seem to rest un¬ 
der the general false impression that Wall 
Street owns the railroads and furnishes the 
money for them. That is true only to the 
extent that Wall Street acts as the middle¬ 
man in this situation. The railroads are 
owned, not by Wall Street, but by the mil¬ 
lions of stockholders, bondholders, savings- 
bank depositors, life insurance policyholders, 
&c., to whom railroad securities have been 
distributed. Wall Street does not fix the rate 
for money; that is fixed by economic condi¬ 
tions, and security offerings are based upon 
the price at which the public will absorb 
them—and that law would operate just as 
surely if the Government were undertaking 
a financial burden. 

By what process could the holders of rail¬ 
road securities based upon mortgages today 
be compelled to exchange these holdings or 
suffer their confiscation? Indeed, what right 
would the trustees of fiduciary institutions 
have to permit such sacrifices? It is abso¬ 
lutely certain that the Government would 
not have either the power or the right to 
work out any such financial program. 

Under-Maintenance of Roads 

Regarding the contention of Mr. Plumb 
that the roads “controlled by men under the 
influence of Wall Street directorates have 
spent vast sums in unusual expenditures for 

[ 8 ] 


maintenance and supplies, anticipating the. 
return of the railroads to private owners,” 
it is well known to every one familiar with 
the physical equipment of the roads that 
they have been under-maintained during 
Government control. 

The Government is not to be blamed for 
starving the railroad upkeep during the war 
and letting the roadbed and equipment 
decline to the lowest point of safety. Our 
steel and our labor was needed last year for 
the big job in France. The railroads had 
to wait until that job was finished. 

The Railroad Administration started out 
early in the year to attempt to restore the 
physical condition of the properties, but when 
Congress cut down the appropriation the 
Administration had to adjust its plans 
accordingly. 

Difference in Purchasing Power 
of Dollar 

It may be that Mr. Plumb and his asso¬ 
ciates have been misled by comparing dollars 
of expenditures now with dollars of expendi¬ 
tures under private control. If so, they have 
overlooked the fact that a dollar spent for 
maintenance labor now brings about forty 
cents worth of work of the pre-Govern- 
ment control standard. Not only have wage 
scales advanced from fifty to a hundred and 
twenty per cent., but the output per man 
has declined from twenty to fifty per cent. 

The Government in 1918 increased the 
wages of men engaged in maintenance work 
by more than #300,000,000, and these men 
have just been awarded a further increase 

[9] 


of $45,000,000. Thousands of them left 
their work and refused to go back in spite 
of the entreaties of the President. 

Failure of Socialistic Enterprise 

Again, we are assured that great economies 
in operation, which would accrue to the 
public benefit, would be effected by this plan. 
To sustain this bold assertion there is no 
proof whatever; in fact, the whole record of 
socialistic enterprise and of Government di¬ 
rection of industry is that expense and in¬ 
efficiency both increase in marked degree. 
Nowhere has this been more pointedly illus¬ 
trated than in the record of our railroads 
themselves under Government direction. 
The whole record of public ownership in this 
country and throughout the world has proved 
clearly that it does not promote either econ¬ 
omy or efficiency, and, further, that it car¬ 
ries with it political dangers of serious impor¬ 
tance, which have bred far-reaching troubles. 
That the disastrous experiences of other 
countries in this field would be repeated 
in our own somewhat loose-jointed democ¬ 
racy is absolutely certain. 

Such a venture on our part into the field 
of radical socialism could bring only indus¬ 
trial and financial disaster, which would set 
this country hack many years, and if, on a 
basis of their success in securing control of 
transportation, the Socialists should proceed 
further in their program of nationalizing in¬ 
dustry, business chaos would be assured and 
another Russian cataclysm would impend. 

Lethargy of the Public 

The amazing fact is that, in spite of the 
obviousness of this situation and its menace, 

[i°] 


human ignorance and lethargy lend an ear 
to its alluring utopian promises. With the 
tragic collapse of Russia looming before us, 
with the total failure of the communistic 
scheme in Hungary and the admission by the 
new President of its provisional Government, 
himself a labor leader and minister of social 
welfare, that the socialistic venture has been 
a failure, and that henceforth his party would 
stand “for full democracy, with rights of 
private property and full political liberty,” 
it seems impossible that any sane man would 
give credence to the plea of socialism. Yet 
we are informed that 2,000,000 railroad 
workers and all the other millions in the 
ranks of the American Federation of Labor, 
perhaps 5,000,000 in all, support this un¬ 
sound plan, which would certainly work the 
undoing of labor as completely as that of 
capital and ruin the business of the country, 
in which the prosperity of all is involved. 

Organized Opposition Needed 

The alternative presented to the public, 
unless the demands of the brotherhoods are 
approved, is, in the words of the acting 
president of the railway department of the 
American Federation of Labor, that the 
brotherhoods will “tie the railroads up 
so tight that they will never run again.” 
The definite threat is made to “paralyze the 
nation,” unless labor can work its will. We 
are further assured by Mr. Plumb, the 
spokesman of the brotherhoods, that this “is 
going to be a fight to the finish,” and, further, 
that “we will not stand for any modification 
of the principles and proposals set forth in 
our plan.” Before such high-handed declara¬ 
tions there would seem to be but one position 

[n] 


for men with courage and an intelligent re¬ 
gard for their own interests to take, namely- 
that of definite, organized opposition, and 
determination to join issues on this question 
in the court of public sentiment. 

I am just as certain on my part as the 
brotherhood leaders are on theirs that if 
public sentiment could ever really be in¬ 
formed on this question there would be no 
doubt as to its decision and its protection of 
its own interests against any class appeal for 
socialistic experiments. 

Class Rule and Class Profiteering 

Stripped of all its fine phrases and social¬ 
istic rhetoric, the Plumb Plan is simply a 
scheme for class rule and class profiteering. 

It provides for government of transportation 
of the railroad brotherhoods, by the brother¬ 
hoods, and for the brotherhoods. There is 
no modest restraint of profit-sharing in the 
plan, because it turns these properties over 
to the employees on a practically perpetual 
lease under a scheme of control in which they 
fix the return to themselves through their 
power over wages, to the complete exclusion 
of the public interest, and under this lease 
they accept no risk of the business whatever. 
That is borne entirely by the Government, 
or, stated more fairly, by the public. There 
is no provision for securing a fair rental for 
the property, no effective control of rates by 
public authority, and the control over wages 
lies in the hands of a board that the em¬ 
ployees would directly control by a two- 
thirds majority, and completely control by 
reason of political influence. 

What the consequence may be of this class 
control over transportation is foreshadowed 

[ 12 ] p S) 1.0.4 


by the already liberal increases which labor 
has secured through Government control of 
railroads, and the large additional advances 
labor is now seeking. Since 1915 railroad 
labor has averaged a wage increase of more 
than 85 per cent.; more than $1,000,000, 
000 has been added to the wage roll under 
Government direction, and demands now 
lie before the Government authorities for 
increases aggregating $800,000,000 more. 

From the broad standpoint of public inter¬ 
est it seems so obvious as to be beyond 
argument that the control of this great ser¬ 
vice of transportation should remain in the 
hands of the public, and not be delegated to 
any selfish class. That mistakes have been 
made under previous systems of control, or 
lack of control, constitutes no proper argu¬ 
ment for attempting this radical departure 
from the assured bounds of experience. 

No Wall Street Bogey Involved 

We can brush aside the cheap buncombe 
about “watered stock” and “Wall Street 
conspiracies,” for whatever financial mis¬ 
takes may have been made or could be made 
under existing conditions, nothing that capi¬ 
tal ever contemplated in its own interest has 
been half so far-reaching as this proposal of 
labor. Of course any student of railroad 
economics knows that railroad stocks, taken 
as a whole, are not watered and actual rail¬ 
road values are hundreds of millions of dol¬ 
lars above their capitalization and, further¬ 
more that railroad rates and operating ex¬ 
penses bear no relations whatever to capitali¬ 
zation and have been left entirely out of 
consideration by the Interstate Commerce 


Commission. Furthermore, any unpreju¬ 
diced student of the situation knows well 
that the attempt to stir up political support 
by invoking a Wall Street bogey in the pres¬ 
ent situation is entirely unwarranted; first, 
because there is no such bogey, and second, 
because it would not be allowed to function 
if it did exist. This is a pure case of “dust 
in the eyes,” which ought not to deceive the 
most casual reader. 

This whole question of involving Govern¬ 
ment credit in such a financial experiment 
also takes on a new phase, in view of the 
great public interest in Government finance 
through the bond holdings of twenty million 
buyers of Liberty Loan issues, who, aside 
from their interest as citizens in efficient 
transportation, have a large stake in the 
situation, as it is absolutely sure that more 
large Government issues will bring decreased 
values to those already oustanding, and 
would involve hazardous experiments in 
Government finance in which Government 
creditors must suffer. 

Only Way Solution Can Be Worked Out 

The railroad situation today presents many 
real problems, but these problems cannot be 
solved properly in the interests of any class 
or under threat and force. Only patient and 
fair-minded study, from the viewpoint solely 
of the general interest, can bring a proper 
solution. The securing of that solution is 
just as vital to the railroad brotherhoods and 
to labor generally as to any other interest 
involved, for after all they are all citizens of 
the United States, and only as the United 
States prospers as a whole can they long 
prosper. Continued prosperity can be based 

[14] 


only upon sound economic and political prin¬ 
ciples, and any venture into other fields must 
bring disaster to all concerned. 

Our Duty 

The struggle is on between democracy and 
socialism. In spite of its shortcomings, we 
have developed in this country a system un¬ 
der which its people have enjoyed the great¬ 
est prosperity of any people in the world’s 
history. Today all the world turns to us for 
help, and if we jeopardize not only our own 
powers of service but also our own national 
future by departing so radically from the 
system which has made us great we will be 
recreant to both our duty and our oppor¬ 
tunity. Individual freedom and the incen¬ 
tive to success, which have built this country, 
cannot be forsaken without pulling down 
over our own heads the structure we have so 
proudly reared. It seems unthinkable that 
such a possibility could even be discussed, 
and yet here it faces us, not only a possibility, 
but a probability, unless the intelligence of 
the country is aroused to meet it. 

On this question of Government ownership 
of railroads we stand today in the first line 
trenches for the protection of the private 
ownership of all property. If this position is 
lost the whole line will be seriously threat¬ 
ened. Men who believe in American institu¬ 
tions, in property rights, in orderly Govern¬ 
ment, must line up in opposition to this at¬ 
tack, or live to regret the day of their un¬ 
preparedness. 



















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